Offshore banking to stimulate foreign investment

Offshore banking refers to banking services off the shore or the main land. Offshore banking mainly serves those who are not residents of the mainland where the offshore bank is situated. For example, offshore banking in Bangladesh is serving those who are residing outside Bangladesh including the Non-Resident Bangladeshis.
The history of offshore banking commenced from the Cayman Island in Atlantic Ocean which is close to France and England. The Cayman Authority was very keen to save the depositor's interest with the enactment of confidentiality Act that allured Europeans to flock to the Cayman Island  and other contemporary offshore centres in and around Europe.
Offshore banking became very popular for its high-yielding outcome and low tax jurisdictions in addition to its maintaining confidentiality to the regulators of the mainland. Though it is widely talked about that the offshore centres are used to launder money, it has been found that offshore banking is holding a staggering amount of USD 21 trillion -- equal to the Gross Domestic Product (GDP) of the United States of America and Japan.
WHY OFFSHORE BANKING IN BANGLADESH: Offshore banking activity first started its journey in Bangladesh in 1980 for facilitating non-resident investors who flocked to our country to invest in the Chittagong Export Processing Zone, being the first EPZ in Bangladesh and the sixth in south Asia. In this context, we should remember the BEPZA Act-1980 which has given coverage to offshore banking in Bangladesh. The objective of offshore banking in Bangladesh is totally different to that of the Cayman and other western offshore centres. It was introduced here to facilitate free movement of funds to the foreign investors. In the normal banking system, authorised dealers in Bangladesh were not allowed to facilitate outward remittance without Bangladesh Bank's permission which was time-consuming and created bottleneck to the attracting Foreign Direct Investment (FDI). Since the investors used their own fund remitted inward through normal banking channel, they should be allowed to freely bring the investment in to the country and take the same back to his own country without any query from any corner of the regulators.
CURRENT SCENARIO OF THE OFFSHORE BANKING IN BANGLADESH: Offshore banking gained some momentum from 2001 with a few foreign banks being allowed by the Banking Policy and Regulation Department of Bangladesh Bank to run offshore banking in the country. The offshore wings of the foreign banks have been running their offshore banking activities mainly to the exporters doing business in the Export Processing Zones in Bangladesh. In course of time, local banks started to step into the field which is very meagre in comparison with the foreign banks. The offshore units of the local banks are running their business only on UPAS and local bill discounting which is almost 90 per cent of their total exposure whereas the foreign banks are running in  a very steady and solid shape not delimiting themselves within UPAS and bill discounting. Rather, they are booking customers and making the core banking activity healthier day by day. The main reason for not flourishing the offshore activity of the local banks in the core business arena is that  offshore banking business is not suitable at all for the local banks because of the regulatory and geographical limitations thereof.
LOCAL BANKS IN OFFSHORE BANKING: Most of the local banks having offshore banking units are giving the following services:
* Buyers' Credit facilities to the local importers through authorised dealers (Issuing Bank) under the FE Circular No.28/2010.
* Processing bills of indirect exporters of the authorised dealers under FE Circular No 03/2013.
* Giving Term loan/syndication financing to the mainland borrowers who are permitted by the respective regulators such as the Board of Investment.
* Limited scale bill collection services to the direct and indirect exporters who are categorised as Type-A industry in the Export Processing Zones and who were once the customers of the foreign bank.
n Limited scale working capital support such as BTB LC, LATR and Packing Credit to the Type-A industries in procurement of raw materials for fulfilling their export orders.
From the above, it is evident that the offshore wings of the local bank are delimited within the banking facilities mainly to the mainland customers through UPAS and bill discounting and term financing in FC. But this should not have been the main function of the offshore banking in Bangladesh. Offshore banking was aimed at facilitating the foreign investors who would come to Bangladesh with their equity through free movement of their funds.
ROLE OFFSHORE BANKING SHOULD PLAY:
* Offshore banking facilities should attract foreign investors to invest in the mainland. Foreign investors always consider easy movement of their investment without any hassles. If the offshore banking is properly guided by the regulators, it may flourish in Bangladesh and it would be easier for the local banks' to operate offshore banking business smoothly.
* Since banks irrespective of classes have to comply with the rules and regulations set by the anti-money laundering regulators, free movement of fund should be monitored by the regulators in facilitating inward and outward remittance of the foreign investors at the placement point.
* Since foreign investors are using their own capital from abroad to the mainland, the bankers feel shy in outward remittance of any of the fund fearing that they may violate the regulator's guidelines. This should be much eased.
* Foreign investors who frequently require remitting fund to and from the parent company abroad and take the working capital and other credit facilities to and from the foreign bank should feel comfortable in doing business in the mainland of the offshore banks. Authorised dealers in Bangladesh under the existing foreign exchange rules is permitted in limited scale to support the foreign investors without Bangladesh Bank's Permission though the flexibility is getting wider under the present government.
FINANCING OFFSHORE COMPANIES BY THE OFFSHORE WINGS OF THE LOCAL BANKS: It is observed that a few numbers of local banks are engaged in financing facilities to the offshore companies in the Export Processing zones and foreign owned/controlled companies outside Export Processing zones due to the following limitations:
Offshore companies in Bangladesh in and outside the EPZs are reluctant to do business with the local banks because of their parent companies maintaining international credit line with foreign banks in their home land. They are given flexibility by the foreign banks in availing their credit line staying in Bangladesh. Offshore companies in and outside the EPZs are not able to give security to the local offshore banks except hypothecation on their land-building raw and finished materials. They are also reluctant to give international Bank guarantee covering their exposure to the lending offshore banks. These  issues should be addressed.
Offshore banking in Bangladesh is being run on limited guidelines. For facilitating investment promotion, well-structured offshore banking is very time-befitting. This can be made more client-friendly by facilitating policies.
The writer is Head of the Offshore Banking Unit, Bank Asia Limited